Budget 2026 reaction: the new £370,000 EMI + EMI2 option package

Let’s get the dull but worthy stuff out of the way first.

Budget 2026 contains some welcome improvements to employee share plans. From 6 April 2027, the EMI tax-protection window following a disqualifying event doubles from 90 to 180 days for events occurring from that date. Certain disguised remuneration exclusions for third-party arrangements to earmark employee shares and options are extended to 15 years, subject to conditions. And the previously announced removal of separate EMI grant notifications takes effect for new grants, although annual reporting remains.

All sensible changes that make life a little easier.

But the scene-stealer, particularly for those of us involved in share plans, is CSOP.

Now christened (rebranded?) EMI2, the plan's individual limit doubles from £60,000 to £120,000 from April 2027, while the tax-advantaged exercise period extends from 10 to 15 years.

Earlier this year, I wrote about why extending EMI options to 15 years matters⁠. The same argument applies here: longer option lives better reflect how businesses grow and realise value over extended ownership cycles. But there is another change which is way more significant.

Two plans, one £370,000 package

Currently, CSOP options count towards an individual’s £250,000 EMI limit. A further CSOP grant can also trigger an EMI disqualifying event if the combined limit is exceeded. That interaction is being removed.

An eligible employee could therefore hold EMI options over shares worth £250,000 alongside EMI2 options over a further £120,000, measured by the unrestricted market value of the underlying shares at grant.

That’s potentially £370,000 of tax-advantaged option capacity, subject to existing awards, available headroom and the relevant conditions. And, of course, subsequent gains are not capped at £370,000.

What is the additional £120,000 actually worth?

Consider an employee receiving the maximum under both plans, with exercise prices equal to the unrestricted market value of the underlying shares at grant. Three years later, the share price has tripled. The employee exercises and immediately sells the shares for £1.11 million. After paying the £370,000 exercise price, the gain is £740,000.

Assuming the relevant conditions are met, the £500,000 EMI gain attracts Business Asset Disposal Relief (BADR) at 18%, while the £240,000 EMI2 gain is taxed at 24%. Total CGT is £147,600, an effective blended rate of approximately 20%.

But the more useful comparison is with an employee who already has £250,000 of EMI options and receives an unapproved option over the additional £120,000 of shares - a typical construct where the £250k EMI limit is exceeded.

On the same assumptions, the unapproved option produces a £240,000 gain. For an additional-rate taxpayer paying 45% income tax and 2% employee NICs, the liability could reach £112,800, assuming the shares are readily convertible assets.

Using EMI2 instead would save the employee £55,200, with a further £36,000 of gross employer NICs potentially avoided.

That’s a substantial benefit from using a different tax wrapper for the same award on our assumed terms.*

The £55,200 saving also puts another Budget change into perspective. From April 2027, the BADR lifetime limit falls from £1 million to £500,000. With just six percentage points separating BADR at 18% from the higher CGT rate of 24%, the maximum saving from BADR under the new limit is £30,000.

Worth having, certainly. But the much bigger prize with EMI and EMI2 is securing capital gains treatment in the first place, rather than exposing option gains to income tax and NICs.

What should companies be thinking about?

If you’re an EMI-qualifying private company, the immediate point is to revisit what happens when an employee reaches the £250k EMI limit. 

Rather than automatically moving to unapproved options, EMI2 should be the next arrangement to consider.

Inevitably there are some technical differences. In close companies, CSOP’s 30% material-interest test can take existing EMI options into account, potentially preventing a grant or subsequent exercise (this will surely change). And where shares are restricted, CSOP may require a higher exercise price than EMI.

The plans also operate to different tax timetables. EMI options granted at market value can generally be exercised without employment tax, subject to the EMI conditions, although two years from grant is ordinarily required for BADR. EMI2 normally requires three years before tax-advantaged exercise, subject to exceptions including certain takeovers.

PISCES illustrates why this matters. Recent legislation protects qualifying amendments to certain options allowing exercise where the resulting shares are sold promptly on PISCES. But it does not remove CSOP’s ordinary three-year requirement. An early secondary sale could therefore produce different tax outcomes under the two plans.

Companies will need to consider grant timing, exercise provisions and opportunities for employees to realise value. Funding matters too: in our example, £370,000 (a chunky sum) must be paid to exercise, potentially using sale proceeds or an appropriate cashless mechanism.

For EMI-ineligible private companies, including some private equity-backed businesses, standalone EMI2 also deserves another look. Corporate control and share eligibility must be checked before considering how the capital structure and preference waterfall affect the incentive’s value.

If you’re a listed PLC, the enlarged £120,000 limit makes EMI2 worth reconsidering for senior managers and other key employees, potentially alongside existing LTIPs. Market-value options offer a different risk and reward profile from nil-cost awards, delivering value only above the exercise price. The tax advantage is attractive, but dilution, shareholder expectations and the wider remuneration strategy still matter.

And what about grants before April 2027?

Companies considering awards in the coming months should review existing EMI and CSOP holdings and whether some grants should wait until the additional capacity becomes available. But delay could mean a higher exercise price if the company’s value increases.

There is also welcome flexibility for existing CSOP awards: qualifying agreements can be amended to benefit from the new 15-year period, subject to the legislation.

The bigger opportunity

The government has called the enlarged plan EMI2. It sounds like a sequel, but the Budget expressly envisages it working alongside EMI as well.

I suspect it won’t be long before we see combined arrangements christened EMI+, EMI Fusion or perhaps even EMI 370. I, for one, like to give things names. You might have guessed.

Whatever we end up calling them, the £250,000 EMI limit need no longer mark the end of tax-advantaged discretionary options for an eligible employee. The opportunity is to make the two plans work together, from the initial grant through to the eventual realisation of value.

At Burges Salmon, we advise listed companies and growing private businesses on the design and implementation of employee share plans and wider equity incentives. The Budget changes provide an opportunity to revisit existing arrangements and consider how different plans can work together, commercially as well as from a tax perspective.

*The illustrative calculations assume exercise prices equal to grant-date unrestricted market value, exercise and immediate disposal on or after the third anniversary, full BADR eligibility and unused lifetime allowance, no annual exemption or losses, and marginal rates of 45% income tax, 2% employee NIC and 15% employer NIC in the unapproved comparison. The Budget 2026 changes proposed for April 2027 remain subject to legislation.